Dave Ramsey’s Debt Snowball doesn’t make mathematical sense, but it works. Many people will claim that paying the highest interest debt first is what will get you out of debt sooner. Yes, that makes sense when you look at the numbers. Paying highest interest debt first means you’ll pay off the more expensive debts sooner, thereby, saving you money in the long-run.
But, when it comes to personal finance, you can’t always think about the numbers and math. Dave Ramsey’s Debt Snowball is a debt payoff method that considers the behavioral side of paying off debt. Here’s Dave’s thoughts:
What I have learned is that personal finance is 20% head knowledge and 80% behavior.You need some quick wins in order to stay pumped enough to get out of debt completely.
How Does Dave Ramsey’s Debt Snowball Work?
Dave Ramsey says to first save $1000 in an emergency savings account so that you don’t go deeper into debt when financial emergencies arise. The $1000 typically covers you from most minor emergencies which range from $100 to several $100.
The best way to get started paying off debt with Dave Ramsey’s debt snowball is to list all your debts from lowest balance to highest, ignoring the interest rates. The only time you don’t ignore the interest rates is when you have two debts with almost the same balance. In that case, list the higher interest debt first. Pay the minimum payments on all your debts except the first one. The first debt payment should be the minimum plus the additional amount you think you can pay extra towards your debt each month. Hopefully, you can find some amount, even if it’s small, to pay extra. Doing so may require reducing expenses or generating additional income with a part-time job.
Once you pay off your first debt, you snowball your payment to the next debt. So your next debt payment will be the minimum amount on your first debt, plus the extra amount you were paying on it, plus the minimum payment on your second debt. You’re compounding your debt payments as you make your way through each debt creating a payment snowball that gets larger the further you get down your list. Overall, it’s a pretty simply method to understand, but it works as you’ll find when you listen to Dave’s weekly radio show. Many listeners call in with their success stories.
Motivated by Your Success
The behavioral side of the method is with the wins you experience by paying the smaller debt first. You’ll see that you can be successful in paying off debt sooner by paying off a small debt instead of tackling a big one with higher interest. This is motivating and encouraging for a lot of people and helps them work harder to pay off debt. Some people get so excited they start selling things to increase their debt payments, or even work a part-time job for a defined time period or until their debt is paid off.
Getting into debt and recognizing you have a problem to overcome can be frustrating, frightening and stressful. A lot of people pay for debt settlement and other services, but Dave’s method is about hard work and dedication to the Debt Snowball. Yes, I said hard work. You have to be willing to balance a budget to find extra money to pay on your debts. You also have to sometimes be willing to work hard to earn more money to pay on your debts.
Have you tried Dave Ramsey’s debt snowball? If so, please share your experience in the comments.